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January 13, 2009 8:30 AM

So About Those League Tables...

Posted by Zach Lowe

The New York Times made a big to-do Sunday over Linklaters taking over the top spot in the Mergermarket deal adviser rankings, with more than $720 billion worth of deals to the firm's credit. The Magic Circle firm had supplanted Sullivan & Cromwell and Skadden, Arps, Slate, Meagher & Flom, a development that "must come as a blow to the traditional leaders of the law league tables," the NYT wrote.

Really though, S&C and Skadden have nothing to worry about. S&C finished atop Dealogic's annual M&A rankings, with Skadden coming in second and Linklaters nowhere to be found in the top ten. Linklaters did finish in the top spot in the other two most-watched league tables--those would be Bloomberg and Thomson Reuters--but the dollar value of the deals was different on each chart; Bloomberg credited Linklaters with advising on $364 billion in deals, Dealogic didn't list them at all, Thomson Reuters calculated $468 billion for Linklaters, and Mergermarket had the value way up at the aforementioned $720-plus billion.

"At the end of the day, these ratings are not precise," says George Casey, cohead of M&A at Shearman & Sterling. Casey and other lawyers we spoke to say the best way for clients to use the rankings is to view them over a period of several years and not to read anything into a firm rising or dropping one or two spots.

Most of the differences can be explained by the methodologies the rankings use. Mergermarket counts dead deals, while Bloomberg doesn't and the other two systems appear not to. So the massive BHP Billiton-Rio Tinto deal factors into Mergermarket's rankings but not the others. Paradoxically, other ranking systems likely included that deal in their 2007 rankings because BHP made its first offering then, says Elias Latsis, research director at Mergermarket. Latsis doesn't include a deal in Mergermarket's rankings until the buyer has officially pitched the deal to the target's shareholders--and on BHP-Rio Tinto, that didn't happen until 2008.

Some of the ranking systems, such as Thomson Reuters, count stock spin-offs, including the $113 billion spin-off of Philip Morris International. That deal single-handedly placed Hunton & Williams atop Thomson's deal ratings for the first quarter of 2008 and kept them at number 23 even though they advised on just 52 deals all year, according to Thomson.

Some ratings systems divvy up credit based on how large a role the law firm played on a deal, while others give each firm credit for the full value of the deal no matter what the firm's contribution was. This has caused some private grumbling from M&A attorneys who say Linklaters played a relatively minor role in InBev's takeover of Anheuser-Busch (the firm advised InBev on Belgian financing issues); indeed, the Times didn't note the Magic Circle firm's role in that transaction in its recap of the year's biggest beer mergers.

Mergermarket gives full deal credit to firms that represent financial advisers, whereas others (such as Dealogic) produce a separate chart ranking only firms that advised buyers and targets.

It's all confusing enough to make deal lawyers take the charts with a grain of salt, even if some admit they cherry pick the ranking with the best showing when talking with clients. 

"There are major imperfections with the system," says Joseph Frumkin, head of M&A at Sullivan & Cromwell. "Some of them include spin-offs, and that really has nothing to do with M&A at all."

The quirks in methodology can mean wide discrepancies for a firm from one ranking to the next. Wachtell, Lipton, Rosen & Katz, for instance, didn't make Mergermarket top ten or the Thomson top ten, but it finished seventh according to Dealogic and eighth in Bloomberg's system. 

Only Mergermarket responded to requests for an interview about its methodology by press time. Latsis, the research director there, says he counts dead deals because lawyers receive their hourly bills whether or not the deal closes. But M&A lawyers say the larger deals often come with premiums or bonuses if the deal closes; if it dies, they lose out on significant compensation.

As for Linklaters, a Dealogic spokeswoman says the team isn't quite sure why the firm did not make its global top ten list. She says Dealogic has given Linklaters full credit for the InBev/Anheuser-Busch takeover, but that the firm apparently hasn't submitted all its deal data yet.

All of this makes it important for clients to look at the rankings over a longer time frame, lawyers say.

"Over the big picture, it does give you a sense of who's doing the deals," Frumkin says. "And that's interesting."

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Just imagine a serious client deciding to use Linklater's over S&C or Skadden based upon a league table.

It is not clear where the fault lies. Is it poor data collection, different definitions or failure by law firms to fully circulate data? It is probably all three and more. It is incumbent on the publishers to clearly define what it is they are publishing.

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